Good student, but twin deficits persist



  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD309.191bn (World ranking 39, World Bank 2017)
Population 49.07mn (World ranking 29, World Bank 2017)
Form of state Presidential Republic
Head of government Iván Duque
Next elections 2022, presidential
  • Natural resource base: agricultural, energy and minerals
  • Strong medium-term growth
  • Pro-business environment
  • Fiscal sustainability principle included in the Constitution
  • Support from international financial institutions
  • Independent monetary authorities
  • Sensitive to commodity price fluctuations and the U.S. business cycle
  • Difficult security situation with long running domestic insurgency and drug trafficking
  • Rule of law and control of corruption remain areas of concern
  • High informality in the job market
  • Skewed income distribution

Colombia still recovering from the oil shock

In 2016, real GDP registered its lowest growth in 8 years (+2%) as a result of the severe oil price shock experienced since 2014 and weakening demand from regional partners.

The economy is expected to decelerate further in 2017 despite higher oil prices and an ambitious infrastructure program (4G). While crude oil accounts for 40% of total exports, oil revenues will remain capped as production continues to fall (120bbl/day in May, from a peak of 130bb/day in early-2016).

Moreover, the rise in VAT from 16% to 19% will weigh on private consumption and tourism-related activities. All in all, we expect economic growth to be below 2% in 2017. A modest rise to +2.9% in 2018, will still place it well below the 2010-2015 average of +4.5%.

Moderating inflation allowed for a supportive monetary policy. To sustain the recovery the central bank cut the key rate by 325bps since September 2016 (125bps cut since the beginning of the year) to 6.25% in May 2017, its lowest level in 13 months. After a peak of +9% y/y in June 2016, consumer prices have moderated to +4.7% y/y in April, still above the 3% ±1pp inflation target range. Monetary authorities expect inflation will converge to the central target by 2018.

Public and external positions are overall sound

The trade balance has been steadily improving for a year, mostly due to a decrease in imports, while exports have just started recovering. Hence, the current account deficit, which reached in Q3 2015 -6.7% of GDP, narrowed to -4.4% in Q4 2016. It is expected to improve further over the next two years thanks to the recovery in exports.

Moreover, the external deficit is more than entirely covered by net FDI inflows. External debt is reasonable (44.6% in 2016) and import cover is comfortably above 7 months, although it dropped from 10 months in 2016 with the recent rise in imports.

Although the fiscal deficit widened with the fall in oil revenues, the structural deficit declined to -2.8% of GDP according to the IMF, remaining consistent with the fiscal rule. The recent VAT rate hike attests to the country’s resilient fiscal policy tightening. Fiscal balance should improve in 2017 (-2.8%).

Strong business environment

Colombia has strengthened its macroeconomic fundamentals since the early 2000s thanks to sound macroeconomic policy reforms. This was due to the adoption of (i) a credible inflation targeting regime, (ii) a freely floating exchange rate, (iii) a structural fiscal rule and (iv) a solid financial regulation. According to the World Bank’s Ease of Doing Business survey, Colombia ranks 2nd in Latin America (53 of 190 worldwide), after Mexico (47th). The peace accord with the FARC, although contested by the opposition, also sets the stage for positive developments. 

Trade structure by destination/origin

(% of total)

Exports Rank Imports
United States 34%
27% United States
China 6%
20% China
Venezuela 4%
8% Mexico
Ecuador 3%
5% Brazil
Spain 3%
4% Germany

Trade structure by product

(% of total)

Exports Rank Imports
Crude Oil 32%
8% Refined Petroleum Products
Coals 13%
6% Cars And Cycles
Other Edible Agricultural Prod 10%
5% Telecommunications Equipment
Non-Monetary Gold 7%
4% Plastic Articles
Refined Petroleum Products 5%
4% Pharmaceuticals

The payment behavior of domestic companies has been deteriorating, with DSO remaining high and late payments occurring frequently.

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

Procedural costs and delays are significant, so court proceedings should be avoided overall. On the other hand, the court system has too many requirements in order to accept security titles.

When it comes to insolvent debtors, collecting debt is a genuine challenge and, overall, negotiating payment during the pre-legal action phase remains the most efficient alternative.

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Collection complexity Colombia

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